Sign in
Become a MarketWatch member today
Brett Arends' ROI
April 25, 2011, 12:01 a.m. EDT
View all Brett Arends' ROI "º
"¹ Previous Column
Uranium is not going away
First Take "º
L.A. Dodgers versus Bud Selig
By Brett Arends, MarketWatch
BOSTON (MarketWatch) "” The International Monetary Fund has just dropped a bombshell, and nobody noticed.
For the first time, the international organization has set a date for the moment when the "Age of America" will end and the U.S. economy will be overtaken by that of China.
The Wall Street Journal's Steve Moore critiques the president's speeches attacking Republican budget plans.
And it's a lot closer than you may think.
According to the latest IMF official forecasts, China's economy will surpass that of America in real terms in 2016 "” just five years from now.
Put that in your calendar.
It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world's hegemonic power.
According to the IMF forecast, whoever is elected U.S. president next year "” Obama? Mitt Romney? Donald Trump? "” will be the last to preside over the world's largest economy.
Most people aren't prepared for this. They aren't even aware it's that close. Listen to experts of various stripes and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
But they're miscounting. They're only comparing the gross domestic products of the two countries using current exchange rates.
That's a largely meaningless comparison in real terms. Exchange rates change quickly. And China's exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using "purchasing power parities." That compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America's share of the world output down to 17.7%, the lowest in modern times. China's would reach 18%, and is rising.
Just 10 years ago, the U.S. economy was three times the size of China's.
Naturally, all forecasts are fallible. Time and chance happen to them all. The actual date when China surpasses the U.S. might come even earlier than the IMF predicts, or somewhat later. If the great Chinese juggernaut blows a tire, as a growing number fear it might, it could even delay things by several years. But the outcome is scarcely in doubt.
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co.
Baseball Commissioner Bud Selig has assumed unprecedented powers by taking over the Dodgers. Could the Mets be next? Jon Friedman wonders.
2:49 p.m. April 22, 2011
"IMF bombshell: Age of America nears end http://on.mktw.net/faXYEy" 11:48 p.m. EDT, April 24, 2011 from MKTWArends
"Uranium is not going away http://on.mktw.net/fwjBer" 11:34 p.m. EDT, April 21, 2011 from MKTWArends
"S&P move good for gold, ominous for Treasurys http://on.mktw.net/gMJas8" 1:07 p.m. EDT, April 18, 2011 from MKTWArends
"Small-cap investors paying too much for risk http://on.mktw.net/eY33Qt" 11:23 p.m. EDT, April 14, 2011 from MKTWArends
"The safest bonds in the world http://on.mktw.net/ftH0Ws" 11:33 p.m. EDT, April 12, 2011 from MKTWArends
Money and Power
Sluggish recovery makes us lose faith
Ways and Means
You're richer than you may realize
Marsh on Monday
Bumbling Brown does the world a favor
Home Economics
Funding for housing help gets budget ax
This Week in China
Hong Kong anxiously watching Fed
No-Nonsense Investing
When will Bernanke take punch bowl away
Read Full Article »